UST GOLDEN NOTES 2009

SALES

Q: Adoracion and Angel Rufloe acquired a parcel of land in Muntinlupa and covered by a TCT.
Sometime in 1978, Elvira Delos Reyes forged the signatures of the spouses in a Deed of Sale to make it
appear that the disputed property was sold to her, thus, a new TCT was issued.

The Rufloes filed a complaint against Delos Reyes and also filed a notice of adverse claim.

During the pendency of the case, Delos Reyes sold the subject property to the Burgos siblings and a
new title was issued. In turn, they sold the same property to their aunt, Leonarda which was not
registered.

1. Is the sale by Delos Reyes to the Burgos siblings and the subsequent sale by the siblings to
Leonarda valid?
2. Are the Burgos siblings and Leonarda Burgos innocent purchasers in good faith and for value?

A:
1. No, the forged deed of sale was null and void and conveyed no title.

No one can give what one does not have. One can sell only what one owns or is authorized to sell,
and the buyer can acquire no right more than what the seller can transfer legally. Due to the forged
deed of sale, Delos Reyes acquired no right over the subject property which she could convey to the
Burgos siblings. All the transactions subsequent to the falsified sale between the spouses Rufloe and
Delos Reyes are likewise void.

2. No. An innocent purchaser for value is one who buys the property of another without notice that some
other person has a right to or interest in it, and who pays a full and fair price at the time of the
purchase or before receiving any notice of another person’s claim. The burden of proving it lies upon
one who asserts that status.

The Rufloes caused a notice of adverse claim to be annotated on the title of Delos Reyes. Despite the
notice, the Burgos siblings still purchased the property. Also, when the Burgos siblings bought land,
the cases filed by the Rufloes against Delos Reyes, were both pending. It should have alerted the
Burgos siblings. Delos Reyes was not in possession of the land, they did not exert any effort to
personally verify with the Register of Deeds if Delos Reyes’ certificate of title was clean and authentic.
Leonarda, too, is not a purchaser in good faith. The Rufloes continued to have actual possession of
the land; Leonarda should have investigated the nature of their possession. (Rufloe et.al. v. Burgos
et. al., G.R. No. 143573, January 30, 2009)

Q: Spouses Apeles leased the subject property to Arturo Eulogio, Enrico’s father. Upon Arturo’s
death, Enrico succeeded as lessor of the subject property. Spouses Apeles and Enrico allegedly
entered into a Contract giving Enrico before the expiration of the three-year lease period, the option to
purchase the subject property for a price not exceeding P 1.5M.

Before the expiration of the three-year lease period, Enrico exercised his option to purchase the
property by communicating verbally and in writing to Luz his willingness to pay the agreed purchase
price, but Spouses Apeles ignored it. Whether the contract of lease with option to purchase is valid?

A: No. Spouses Apeles established that Luz was not in the Philippines on the date of the execution of the
document. Also, Enrico himself admitted that Luz took the document and had it notarized without his presence.
It overcomes the presumption of regularity since a notary public is enjoined not to notarize a document unless
the persons who signed the same are the very same persons who executed and personally appeared before
the said notary public to attest to the contents and truth of what are stated therein.  Although there is no direct
evidence to prove forgery, preponderance of evidence favors Spouses Apeles. Even assuming that Luz
voluntarily entered into the Contract and personally affixed her signature, the provision on the option to
purchase the subject property incorporated in said Contract is unenforceable. No consideration was given by
Enrico to Spouses Apeles for the option contract. The consideration is “the why of the contracts, the essential
reason which moves the contracting parties to enter into the contract.” By the very nature of an option contract,
the same is an onerous contract for which the consideration must be something of value, although its kind may

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vary. The only consideration agreed upon by the parties in the said Contract is the supposed purchase price
for the subject property, which could not be deemed to be the same consideration for the option contract since
the law and jurisprudence explicitly dictate that for the option contract to be valid, it must be supported by a
consideration separate and distinct from the price. (Enrico Eulogio v. Spouses Clemente and Luz Apeles, G.R.
No. 167884, January 20, 2009)

Q: A settlement over a land dispute was executed between Ngo and Ong but before the court could
approve it, a complaint-in-intervention was filed by Co alleging that it was agreed that the subject lot
would go to him after paying respondent Ngo for such lot. Ngo vehemently denied having entered into
such agreement, much less having received any amount since he refused and even destroyed the
checks given by Co. Is there a perfected contract of sale between the parties?

A: None. In fine, the evidence of petitioner does not indicate a perfection of the purported contract of sale
which, under Art. 1458, is a contract by which "one of the contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the other to pay therefrom a price certain in
money or its equivalent." Under Article 1475, "the contract of sale is perfected at the moment there is
meeting of the minds upon the thing which is the object of the contract and upon the price. From that moment
the parties may reciprocally demand performance subject to the provisions of the law governing the form of
contracts."

A definite agreement on the manner of payment of the price is an essential element in the formation of a
binding and enforceable contract of sale. Petitioner’s testimonial and documentary evidence did not establish
any definitive agreement or meeting of the minds between the parties concerning the price or term of payment.
The contention of petitioner that the agreement of sale between him and private respondent was forged during
the arbitration meeting of March 11, 1979 is contradicted by the Minutes of such meeting. Based thereon,
there was nothing whatsoever that transpired to indicate that the sale occurred between the parties. The
admission of petitioner himself that when he issued the checks amounting to P19, 500.00 in favor of
respondent Benito Ngo, supposedly as partial payment of the purchase price, the latter destroyed the checks,
thereby negating the existence of the meeting of the minds of the parties on the sale. (Co v. Court of Appeals,
G.R. No. 123908, February 9, 1998)

Q: X is a devisee of a certain parcel of land. X in his capacity as an heir entered into a contract to sell
said parcel of land to Z during the probate proceedings of the estate of the deceased. After receiving
the downpayment, X backed out from the contract claiming that the probate court did not approve the
contract. Is the contract to sell entered into by X and Z valid even without the approval of the probate
court?

A: As correctly ruled by the Court f Appeals, Section 7 of Rule 89 of the Rules of Court is not applicable,
because petitioner entered into the contract to sell in her capacity as an heiress, not as an executrix or
administratrix of the estate. In the contract, she represented herself as the lawful owner and seller of the
subject parcel of land. She also explained the reason for the sale to be “difficulties in her living” conditions and
consequent “need of cash”. These representations clearly evince that she was not acting on behalf of the
estate under probate when she entered into contract of sell.

Hereditary rights are vested in heir or heirs from the moment of the decedent’s death. Petitioner, therefore,
became the owner of her hereditary share the moment her father died. Thus the lack of judicial approval does
not invalidate the contract to sell, because the petitioner has the substantive right to sell the whole or a part of
her share in the estate of her late father.

Finally, the petitioner is estopped from backing out of her representation in her valid contract to sell with private
respondents, from whom she received initial payment of P300,000.00. Petitioner may not renege on her own
acts and representations, to the prejudice of the private respondents who have relied on them. (Opulencia v.
Court of Appeals GR no. 125835, July 30, 1998)

Q: Spouses-petitioners negotiated with Gatus concerning the possibility of buying his rights to certain
units at a subdivision developed by respondent Phil-Ville for parties qualified to obtain loans from
GSIS. They paid Gatus an amount for which Gatus issued them receipts in her own name. As they were
not GSIS members, they looked for members who could act as accommodation parties. However, the
GSIS disapproved their loan applications. Phil-Ville advised them to seek other sources of financing. In

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the meantime, they were allowed to remain in the subject premises. Do petitioners and respondents
have a perfected and enforceable contract of sale or at least an agreement to sell over the disputed
housing units?

A: None. There was no contract of sale perfected between the private parties over the said property, there
being no meeting of the minds as to terms, especially on the price thereof. At best, only a proposed contract to
sell obtained which did not even ripen into a perfected contract due at the first instance to private respondents'
inability to secure approval of their GSIS housing loans. As it were, petitioners and private respondents have
not hurdled the negotiation phase of a contract, which is the period from the time the prospective contracting
parties indicate interest on the contract to the time the contract comes into existence the perfection stage upon
the concurrence of the essential elements thereof. (Sps. Raet & Sps. Mitra v. CA, G.R. No. 128016, September
17, 1998)

Q: A and XYZ Development Corp. executed a contract to sell over a parcel of land. A died w/o having
completed the installment on the property. His heirs, herein petitioners, then took over the contract to
sell, assumed his obligations by paying the selling price of the lot from their own funds, and completed
the payment in 1978. To whom should the final Deed of Absolute Sale be executed by XYZ
Development Corp. upon full payment of the purchase price?

A: Indeed, on March 1978, XYZ Development Corp. could not have transferred the title over the lot through a
Deed of Sale to A who had died seven years earlier. In 1978, the deceased had no more civil personality or
juridical capacity. His juridical capacity, which is the fitness to be subject to legal relations, was lost through
death. In other words, the said property did not become part of the estate of A. Necessarily, partition is not the
remedy to determine the ownership thereof.

Having stepped into the shoes of the deceased with respect to the said contract, and being the ones who
continued to pay the installments of the selling price from their own funds, petitioners necessarily become the
lawful owners of the said lot in whose favor the deed of absolute sale should have been executed by vendor
XYZ Development Corp. (Dawson v. Register of Deeds of Quezon City, G.R. No. 120600 September 22, 1998)

Q: Respondent Abecia was counsel of complainant Daroy in a case for forcible entry. Judgment was
rendered in favor of complainant as plaintiff in the ejectment case, ordering the defendants to pay
damages, attorney’s fees and the costs of the suit. To satisfy the judgment, the sheriff sold at public
auction a parcel of land belonging to one of the defendants. Complainant Daroy was the highest bidder.
Upon failure of the defendant to redeem the land, its ownership was consolidated in the name of Daroy.
Can complainant Daroy sell the lot to his counsel Abecia?

A: The prohibition in Article 1491 does not apply to the sale of land acquired by a client to satisfy a judgment in
his favor, to his attorney as long as the property was not subject of the litigation. For indeed, while judges,
prosecuting attorneys and others connected in the administration of justice are prohibited from acquiring
“property or rights in litigation or levied upon in execution, the prohibition with respect to attorneys in the case
extends only to property and rights w/c maybe the object of any litigation in which they may take part by virtue
of their profession (Daroy v. Abecia, 298 SCRA 239, October 26, 1998)

Q: In an action for specific performance with damages, plaintiff X alleged that there was an agreement
to purchase the lot of defendant Y for P15, 000 payable as follows: P3,800 as down payment, with P385
monthly installment thereafter. The receipt issued by Y however, contradicted the testimony of X. the
receipts failed to state the total purchase price or prove that full payment was made. For this reason, it
was contended that there was no meeting of their minds and there was no perfected contract of sale.
Was there a perfected contract of sale?

A: Yes. The question to be determined should not be whether there was an agreed price, but what that agreed
price was. The sellers could not render invalid a perfected contract of sale by merely contradicting the buyer’s
obligation regarding the price, and subsequently raising the lack of agreement as to the price. ( David v.
Tiongson, G.R. No. 108169, August 25, 1999)

Q: Y obtained a loan from the GSIS. To guarantee the payment of the loan, Y constituted a mortgage
over his property. Y executed a contract to sell with assumption of mortgage in favor of B. The GSIS
conditionally approved the sale provided that B will execute the promissory note on the obligation to

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be assumed and paid directly to the GSIS. Y and B failed to pay their obligation with the GSIS. As a
result, the mortgage property was extra judicially foreclosed w/ the GSIS as the highest bidder. Y then
negotiated for the sale of the foreclosed property to P who advanced the redemption price to Y, who
then redeemed the property from the GSIS. B filed an action against Y and P for annulment of
foreclosure proceeding, redemption and sale and reconveyance. Will the action prosper?

A: No. Because of B’s failure to update their account and execute a promissory note, GSIS’s conditional
approval of the sale of the property and assumption of mortgage never be became effective. The “Deed of
Absolute Sale with Assumption of Mortgage” itself was not perfected since assumption of the mortgage by
petitioners was a condition precedent for the sale of the property to them. Article 1181 of the New Civil Code,
provides that “In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which constitutes the condition.” Accordingly,
in sales with assumption of mortgage, the assumption of mortgage is a condition to the seller’s consent so that
without approval by the mortgagee, no sale is perfected (Ramos v. Court of Appeals, 279 SCRA 118)

Q: An agreement to sell between Talisay-Silay and DAE Sugar Milling Corp. was executed covering vast
tract of land. Thereafter, DAE became one of the respondents in a case for damages. Levy on
execution was then issued against DAE. Petitioner and DAE Sugar Milling Co., Inc filed a joint motion
asking the court to issue a resolution to direct the Register of Deeds to register the memorandum of
agreement that they executed on the property covered by TCT No. 115609. Was the levy over TCT No.
115609 valid?

A: No, because DAE Sugar did not own the property covered by TCT No. 115609. The agreement to sell
between Talisay-Silay and Dae Sugar did not transfer the property to DAE since the agreement was to sell and
not one of sale. Thus, a deed of sale or some other contract was necessary to consummate the sale.

In a contract of sale, the title to the property passes to the vendee upon the delivery to the thing sold; in a
contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full
payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the
property and cannot recover it until and unless the contract is resolved or rescinded; whereas in a contract to
sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a
positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective. (Abesamis v. Court of Appeals, G.R. No. 109559, July 19,
2001)

Q: Respondent spouses purchased a jeepney from Union Motor to be paid in installments. They then
executed a promissory note and a deed of chattel mortgage in favor of Union Motor w/c in turn
assigned the same with Jardine Finance. To effectuate the sale as well as the assignment of the
promissory note and chattel mortgage, the spouses were required to sign documents one of which was
a sales invoice. Although the Spouses have not yet physically possessed the vehicle, Union Motor’s
agent required them to sign the receipt as a condition for the delivery of the vehicle. It was discovered
that the said agent stole the vehicle even prior to its delivery to the spouses. Was there a transfer of
ownership of the subject vehicle?

A: No. We rule in favor of the respondent Bernal spouses. We have ruled that the issuance of a sales invoice
does not prove transfer of ownership of the thing sold to the buyer; an invoice is nothing more than a detailed
statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale.

The registration certificate signed by the respondent spouses does not conclusively prove that constructive
delivery was made nor that ownership has been transferred to the respondent spouses. Like the receipt and
the invoice, the signing of the said documents was qualified by the fact that it was a requirement of petitioner
for the sale and financing contract to be approved. In all forms of delivery, it is necessary that the act of
delivery, whether constructive or actual, should be coupled with the intention of delivering the thing. The act,
without the intention, is insufficient. Inasmuch as there was neither physical nor constructive delivery of a
determinate thing, (in this case, the subject motor vehicle) the thing sold remained at the seller’s risk. The
petitioner should therefore bear the loss of the subject motor vehicle after Sosmeña allegedly stole the same.
(Union Motor Corp. v. CA, G.R. No. 117187, July 20, 2001)

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Q: Severina’s heirs entered into a compromise with Dominador, et al. in which Severina’s heirs will sell
the subject lots to Dominador, et al. with the delivery of TCT. They executed a deed of sale. Dominador
discovered that the tax declaration of the land is under the name of another person. So he asked that
the title be first released. Severina’s heir refused to release the certificate of title contending that
Dominador, et al. have not paid the stipulated amount. Were Severina and her heirs justified in not
delivering the owner’s copy of the certificate of title because Dominador has not yet paid the stipulated
amount?

A: No. Severina’s heirs anchor their claim on the “kasunduan” stressing on their freedom to stipulate and the
binding effects of contracts. This argument is misplaced. Article 1305 of the Civil Code provides “the
contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient provided they are not contrary to law, morals, good customs, public order or public policy.”

In a contract of sale, the vendor need not possess title to the thing sold at the perfection of the contract.
However, the vendor must possess title and must be able to transfer title at the time of delivery. In a contract of
sale, title only passes to the vendee upon full payment of the stipulated consideration, or upon delivery of the
thing sold.

Under the facts of the case, Severina’s heirs are not in a position to transfer title. Without passing on the
question of who actually owned the land. It should be noted that there is no proof of ownership in favor of the
Severina’s heirs.

In fact, it is a certain Eugenio, who holds a tax declaration over the said land in his name. Though tax
declarations do not prove ownership, such can be strong evidence of ownership of land when accompanied by
possession for a period sufficient for prescription. Severina’s heirs have nothing to counter the document.
Therefore, to insist that Dominador should pay the price under such circumstances would result in Severina’s
heirs’ unjust enrichment. The essence of a sale is the transfer of title or an agreement to transfer it for a price
actually paid or promised. In Nool v. CA, it was held that if the sellers cannot deliver the object of the sale to the
buyers, such contract may be deemed to be inoperative. (Severina San Miguel v. Court of Appeals, G.R. No.
136054, September 5, 2001)

Q: NDC and Firestone entered into a contract of lease wherein it is stipulated that Firestone has the
right of first refusal to purchase the leased property "should lessor NDC decide to sell the same”. After
the rumor that NDC will transfer the lot to PUP, Firestone instituted an action for specific performance
to compel NDC to sell the property in its favor. PUP moved to intervene arguing that the Memorandum
issued by then Pres. Aquino ordered the transfer of the whole NDC compound to the Government,
which in turn would convey it in favor of PUP. The court observed that NDC could not excuse itself
from its obligation to offer first the property to Firestone. Can Firestone exercise its right of first
refusal?

A: Yes. It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor is
under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the
latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer
shall be in his favor.

The option in this case was incorporated in the contracts of lease by NDC for the benefit of Firestone which, in
view of the total amount of its investments in the property, wanted to be assured that it would be given the first
opportunity to buy the property at a price for which it would be offered. Consistent with their agreement, it was
then implicit for NDC to have first offered the leased premises of 2.60 hectares to F Firestone prior to the sale
in favor of PUP. Only if Firestone failed to exercise its right of first priority could NDC lawfully sell the property
to petitioner PUP. (PUP v. Court of Appeals, G.R. No. 143513, November 14, 2001)

Q: Ten Forty Realty purchased from Galino the disputed parcel of land. It is alleged by Ten Forty that
Galino sold the same property to respondent Cruz and that Cruz immediately took possession of the
said property. Ten Forty contended it merely tolerated Cruz’s occupation of the disputed property.
Since Cruz refused to vacate the premises, Ten Forty filed an ejectment case against the former. Who
has a better right between petitioner Ten Forty and Cruz?

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A: The ownership of immovable property sold to two different buyers at different times is governed by Article
1544, which reads as follows:

"Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.”

"Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is
good faith."

Galino allegedly sold the property in question to petitioner on December 5, 1996 and, subsequently, to
respondent on April 24, 1998. Petitioner thus argues that being the first buyer, it has a better right to own the
realty. However, it has not been able to establish that its Deed of Sale was recorded in the Registry of Deeds of
Olongapo City. Its claim of an unattested and unverified notation on its Deed of Absolute Sale is not equivalent
to registration. It admits that, indeed, the sale has not been recorded in the Registry of Deeds.

In the absence of the required inscription, the law gives preferential right to the buyer who in good faith is first in
possession. In determining the question of who is first in possession, certain basic parameters have been
established by jurisprudence.

First, the possession mentioned in Article 1544 includes not only material but also symbolic possession.
Second, possessors in good faith are those who are not aware of any flaw in their title or mode of acquisition.
Third, buyers of real property that is in the possession of persons other than the seller must be wary — they
must investigate the rights of the possessors. Fourth, good faith is always presumed; upon those who allege
bad faith on the part of the possessors rests the burden of proof.

Earlier, we ruled that the subject property had not been delivered to petitioner; hence, it did not acquire
possession either materially or symbolically. As between the two buyers, therefore, respondent was first in
actual possession of the property.

Petitioner has not proven that respondent was aware that her mode of acquiring the property was defective at
the time she acquired it from Galino. At the time, the property — which was public land — had not been
registered in the name of Galino; thus, respondent relied on the tax declarations thereon. As shown, the
former's name appeared on the tax declarations for the property until its sale to the latter in 1998. Galino was in
fact occupying the realty when respondent took over possession. Thus, there was no circumstance that could
have placed the latter upon inquiry or required her to further investigate petitioner's right of ownership. ( Ten
Forty Realty & Dev’t. Corp. v. Cruz, G.R. No. 151212, September 10, 2003)

Q: Spouses Firme are the registered owners of a parcel of land. The vice president of Bukal Enterprises
authorized his friend, a broker, to negotiate with the Spouses for the purchase of the property.

Bukal Enterprises filed a complaint for specific performance alleging that the Firmes did not make
good of their promise to sell their property. On the other hand, the Spouses denied that they had
perfected contract of sale since they rejected the drafts offered by Bukal Enterprises. Was there a
perfected contract of sale between the Spouses Firme and Bukal Enterprises?

A: None. First, the records indubitably show that there was no consent on the part of the Spouses Firme.
Witness Aviles did not present any draft deed of sale during his first meeting with the Spouses Firme on
January 30, 1995. Witness Dr. Firme was consistent in his testimony that he and his wife rejected the
provisions of the Third Draft presented by Aviles during their second meeting on 6 February 1995. The
Spouses Firme found the terms and conditions unacceptable and told Aviles that they would not sell the
property. Aviles showed them only one draft deed of sale (Third Draft) during their second and last meeting on
6 February 1995. When shown a copy of the First Draft, Dr. Firme testified that it was not the deed of sale
shown to them by Aviles during their second meeting 26 and that the Third Draft was completely different from
the First Draft. (Sps. Firme v. Bukal Enterprises, G.R. No. 146608, October 23, 2003)

Q: Villaba with Soliva’s permission occupied the latter’s house, and promised to buy the house and lot.
Villaba paid Soliva for the occupation of the house. When Villaba died, his wife, took possession of the
property, destroyed the house and built a new one. Despite repeated demands, the Villaba’s wife

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refused to vacate the said property. Soliva filed complaint for recovery of ownership and possession.
Villaba’s wife came to know that her late husband had already paid the certain amount out of the
purchase price for the house and lot and that Soliva’s claim of ownership has already prescribed.

In the present petition for review, Soliva argues that the oral contract of sale was invalid because
respondent failed to comply with obligation to pay in full the purchase price of the house and lot. Did
the failure of respondent to fully pay the purchase price render the contract invalid?

A: No. The nonpayment of the full consideration did not invalidate the contract of sale. Under settled doctrine,
nonpayment is a resolutory condition that extinguishes the transaction existing for a time and discharges the
obligations created there under. The remedy of the unpaid seller is to sue for collection or, in case of a
substantial breach, to rescind the contract. These alternative remedies of specific performance and rescission
are provided under Article 1191.

"The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
The rescission of a sale of immovables, on the other hand, is governed by Article 1592 of the Civil Code. Upon
the facts found by the trial and the appellate courts, petitioner did not exercise her right either to seek specific
performance or to rescind the verbal contract of sale until May 1982, when she filed her complaint for recovery
of ownership and possession of the property. (Soliva v. Intestate Estate of Villaba, GR No. 154017, December
8, 2003)

Q: Parcels of land became the subject of Deeds of Absolute Sale executed by Hilario in favor of the
respondents. But petitioners claimed that the transactions entered into were not actually sales but
merely loans. In their answer, respondents insisted that petitioner Hilario sold to them the lots in
question. The transaction embodied in a deed of absolute sale was for the price of P240, 000.00.
However, before the properties were registered, petitioner Hilario asked for the execution of another
deed of absolute sale indicating P50, 000.00 as the price purportedly to lessen the taxes and fees that
they will be paying. A new deed of absolute sale indicating a selling price of P50, 000.00 for the 3 lots
was executed and notarized. Shortly thereafter, the titles of said lots were transferred to the
respondents. Does the transaction involve an absolute sale or an equitable mortgage of real property?

A: It is an absolute sale. Decisive for the proper determination of the true nature of the transaction between the
parties is the intent of the parties. There is no conclusive test to determine whether a deed absolute on its face
is really a simple loan accommodation secured by a mortgage. To determine whether a deed absolute in form
is a mortgage in reality, the court is not limited to the written memorials of the transaction. This is so because
the decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the
terminology used in the contract but by all the surrounding circumstances, such as the relative situations of the
parties at that time; the attitudes, acts, conduct, and declarations of the parties; the negotiations between them
leading to the deed; and generally, all pertinent facts having a tendency to fix and determine the real nature of
their design and understanding. As such, documentary and parol evidence may be submitted and admitted to
prove the intention of the parties. (Sps Austria v. Sps Gonzales, G.R. No. 147321, January 21, 2004)

Q: A contract of lease was entered into by Agricom and Dee doing business under the name and style
“Pioneer” Thereafter, Agricom sent letters to its employees of their termination by virtue of the lease
contract by Dee of the company’s premises. The severed employees filed a complaint for illegal
dismissal and unfair labor practice against Agricom, Dee and Pioneer. Pioneer sent a letter to Agricom
complaining of facts and events which disrupted its operations in the plantation. Pioneer claimed that it
was dragged into labor disputes not of its own making and complained of being pestered by some
individuals who claimed portions of the plantation as their own property. Some of them went to its
office and even presented tax declarations to prove their claims. Did Agricom fail to maintain Dee in a
quiet and peaceful enjoyment of the leased premises?

A: No. As lessor, Agricom had the duty to maintain Chua Tee Dee in the peaceful and adequate enjoyment of
the leased premises. Such duty was made as part of the contract of lease entered into by the parties. Even if it
had not been so, the lessor is still duty-bound under Art.1654 of the Civil Code. The duty "to maintain the
lessee in the peaceful and adequate enjoyment of the lease for the duration of the contract" mentioned in No. 3
of the article is merely a warranty that the lessee shall not be disturbed in his legal, and not physical,
possession.

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In the case at bar, Chua Tee Dee claims that several people presented tax declarations to her and claimed
some portions of the leased premises. However, no case was filed by any of the said claimants against her or
her lessor during the time she occupied the premises. Patently, then, Chua Tee Dee had not been disturbed in
her legal possession of the property in derogation of Article 1654 of the New Civil Code. When Chua Tee Dee's
representative saw that a portion of the leased premises was being fenced by the claimants, she had all the
right to sue the intruders who had disturbed her physical possession as provided for in Article 1654. However,
the petitioner did not file any suit against any of the claimants. Thus, it cannot be said that Agricom violated the
contract of lease.

Chua Tee Dee also failed to prove that she suffered any loss from the labor case that was filed against her
enterprise and her husband. True, the labor case was instituted during the effectivity of the lease contract until
the case was finally resolved on August 22, 1986. Surprisingly, however, during the interregnum, appellant
regularly paid the monthly rentals for the years 1985 to 1989. It was after the labor case has been resolved that
appellant started to fail to pay her rentals, strongly indicating that the labor case has not dampened her
peaceful and adequate possession of the leased premises. (Dee v. Court of Appeal, G.R. No. 135721, May 27,
2004)

Q: Ceballos was able to borrow from Mercado certain sum of money and as security, she executed a
'Deed of Real Estate Mortgage' over the subject property. The said mortgage was not registered.
Ceballos defaulted. Thereafter, a 'Deed of Absolute Sale' was executed by Ceballos and her husband
whereby the mortgaged property was sold to Mercado for the price of P16, 500.00. Ceballos offered to
buy back the property from Mercado for the price of P30, 000.00 but the latter's wife refused since the
same was already transferred in their names by virtue of the Deed of Absolute Sale. As a
consequence, Ceballos filed the case contending that the Contract should be declared as an equitable
mortgage. Was the CA correct in rejecting Ceballos’s contention that the Deed of Absolute sale was
one of equitable mortgage?

A: Yes. The instances when a contract — regardless of its nomenclature — may be presumed to be an
equitable mortgage are enumerated in Art. 1602 of the Civil Code.

In this case, both the trial and the appellate courts found none of the above-enumerated circumstances. We find
no cogent reason to reverse their factual finding. Concededly, the original transaction was a loan. Petitioner
failed to pay the loan; consequently, the parties entered into another agreement — the assailed, duly notarized
Deed of Absolute Sale, which superseded the loan document. Petitioner had the burden of proving that she did
not intend to sell the property; that Emigdio Mercado did not intend to buy it; and that the new agreement did not
embody the true intention of the parties. We find no basis for disturbing the CA's finding that she had failed to
discharge this burden. (Ceballos v. Intestate Estate of the Late Emigdio Mercado, G.R. No. 155856. May 28,
2004)

Q: Dalisay Sr. bought parcels of land but indicated Dalisay Jr. as the buyer in the Deed of Sale. Dalisay
Jr. sold the parcels of land to Gaje. Respondent as special administratrix of the estate of Dalisay Sr.
filed a complaint for Annulment of Deed of Sale and Reconveyance. RTC and CA both ruled in favor of
respondent. Is Dalisay Jr. the owner of the property and thus, can validly sell such property?

A: No. Foremost, the presumption of truthfulness engendered by notarized documents is rebuttable, yielding as
it does to clear and convincing evidence to the contrary. Even as the Deeds of Sale indicate the name of
Dalisay, Jr. as vendee of the parcels of land, it was established by strong evidence that Dalisay, Sr. remained
the owner thereof, and had no intention of transferring the ownership of the parcels of land exclusively to
Dalisay, Jr. to the exclusion of all his other heirs. It is telling why Dalisay, Jr., during the length of time from the
execution of the Deeds of Sale on 15 June 1973 and until such time when he sold the subject parcels of land to
his co-petitioners, Gaje and Mellonida, neither possessed nor exercised attributes of ownership over the lands.
Dalisay, Sr. remained in possession over the properties from the time they were bought. (Gaje v. Vda. De
Dalisay, G.R. No. 158762, April 4, 2007)

Q: Eulalia was engaged in the business of buying and selling large cattle. In order to secure the
financial capital she advanced for her employees (“biyaheros,”) she required them to surrender TCT of
their properties and to execute the corresponding Deeds of Sale in her favor. Domeng Bandong was
not required to post any security but when Eulalia discovered that he incurred shortage in cattle
procurement operation, he was required to execute a deed of sale over a parcel of land in favor of

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Eulalia. She sold the property to her grandniece Jocelyn who thereafter instituted an action for
ejectment against the Spouses Bandong. To assert their right, Spouses Bandong filed an action for
annulment of sale against Eulalia and Jocelyn alleging that there was no sale intended but only
equitable mortgage for the purpose of securing the shortage incurred by Domeng in the amount of
P70,000 while employed as “biyahero” by Eulalia. Was the deed of sale between Domeng and Eulalia a
contract of sale or an equitable mortgage?

A: It is an equitable mortgage. An equitable mortgage is one that - although lacking in some formality, forms
and words, or other requisites demanded by a statute - nevertheless reveals the intention of the parties to
charge a real property as security for a debt and contains nothing impossible or contrary to law. The instances
when a contract - regardless of its nomenclature - may be presumed to be an equitable mortgage are
enumerated under Art. 1602. In executing the said deed of sale, Domeng and Eulalia never intended the
transfer of ownership of the subject property but to burden the same with an encumbrance to secure the
indebtedness incurred by Domeng on the occasion of his employment with Eulalia. The agreement between
Dominador and Eulalia was not avoided in its entirety so as to prevent it from producing any legal effect at all.
Instead, the said transaction is an equitable mortgage, thereby merely altering the relationship of the parties
from seller and buyer, to mortgagor and mortgagee, while the subject property is not transferred but subjected
to a lien in favor of the latter. To reiterate, the existence of any one of the conditions under Article 1602 of the
New Civil Code, not a concurrence, or an overwhelming number of such circumstances, suffices to give rise to
the presumption that the contract is an equitable mortgage. (Sps. Raymundo, et al. v. Sps. Bandong, G.R. No.
171250, July 4, 2007)

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